The US has historically held a cautious attitude towards cryptocurrencies and digital currencies. Now, however, it looks as if that may change – and from the highest monetary authority in the US. Specifically, the Federal Reserve System is supposedly investigating a central bank digital currency.
Will the United States introduce a “digital dollar”?
This fresh news came during a recent exchange with the Federal Reserve Board Chairman, Jerome Powell. Powell gave a response to a question by the two US Representatives Bill Foster and French Hill, regarding the Federal Reserve’s upcoming plans.
According to Powell, the Federal Reserve is supposedly now looking into potentially launching a central bank digital currency. A central bank digital currency, or a CBDC, is essentially a cryptocurrency under the control of a central bank.
It is no secret that China has previously been looking into the possibility of launching a CBDC. Furthermore, Chinese sources recently said that “America will fall behind” in the cryptocurrency industry due to failing to innovate.
Now, however, Powell’s comments make it clear that the US will not sit idly by – at least not entirely. Instead, Powell said that the Federal Reserve is currently exploring the costs and benefits of a potential CBDC.
Put simply, this initiative to investigate a national digital currency could lay the groundwork for a “digital dollar”. Although Powell also said that the federal agency is currently not actively developing an American CBDC, this is nonetheless highly notable news.
Federal Reserve currently running CBDC tests
Moreover, Powell also went on to state that the Federal Reserve is now running “small-scale, research-focused” experiments on the technology. This will reportedly allow the agency to gain first-hand experience of CBDCs, as well as to understand opportunities and limitations of the potential currency.
Nevertheless, Powell also notes that there as some potential issues to issuing a CBDC. First and foremost, a “digital dollar” of this nature would need to first answer a number of legal uncertainties.
For example, an American CBDC would need to fulfill some financial stability, monetary and payments policies, as well as a operational and supervision issues. Additionally, it would also need to be resistant to cyber attacks, according to Powell. He went on to specify:
“If it is designed to be financially transparent and provide safeguards against illicit activity, a general purpose CBDC could conceivably require the Federal Reserve to keep running record of all payments data using the digital currency […] and sometimes that raises issues related to data privacy and information security.”
Furthermore, after all of this, Representative Hill was enthusiastic that the Federal Reserve is exploring a CBDC. Additionally, he also said that such an act would have “far-reaching implications on every aspect of America’s monetary policy”.
Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the cryptocurrency industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.